With interest rate volatility and the likelihood that fixed rates (although dropping from current HIGH levels) will still be higher in the fall than you might have currently, does it make sense to consider a refinance? With today’s housing prices and cost of living though, a change in your amortization is probably worth a look! So let’s look at some different reasons to refinance.
There are only two ways to get money out of your home, increase your mortgage or sell. Some reasons folks might need the equity from their home could be to consolidate debt, pursue an investment, or pay for a kid’s wedding (better yet, a gifted down payment to help them get a home). The point is, if you’re looking to access equity or change your mortgage (i.e. amortization period, amount, or title), you’re refinancing.
Refinancing simply means replacing your current mortgage with a new one. The new mortgage pays off the balance of your old one, and you’re left with a new mortgage that has different terms and (potentially) a different interest rate. There are several benefits to refinancing your mortgage:
- Lowering your monthly payments: If lucky enough to refinance your mortgage to a lower interest rate, you may be able to lower your monthly mortgage payments but extending or re-extending your amortization is another way to bring your payment down and free up cash flow.
- Shortening the loan term: Refinancing to a shorter loan term can help you pay off your mortgage faster and save money on interest.
- Switching from an adjustable to a fixed-rate mortgage: Refinancing to a fixed-rate mortgage can provide more stability to your monthly payments.
- Accessing equity: Refinancing can allow you to tap into the equity of your home (the difference between the home’s value and the outstanding mortgage balance) which you can use to fund home improvements or other expenses.
- Consolidating debt: If you have high-interest debt, such as credit card debt or personal loans, you may be able to save money by consolidating them into your mortgage by refinancing.
Even in the current mortgage climate, assuming you already own a house at a rate that’s significantly lower than what you’d get now, does that mean you shouldn’t refinance? No, it just depends on what your reasons and goals are. What’s worse, a $50K second mortgage or five credit cards with $10K of debt on each of them? Hands down, the credit cards.
Some factors to consider when refinancing:
- Interest rate: We’ll shop around and compare rates from different lenders to find the best deal for you (including both adjustable and fixed rates).
- Closing costs: Refinancing a mortgage typically involves paying closing costs, we’ll make sure to factor in these costs when considering whether to refinance and whether the savings justify the expense.
- Loan term: Refinancing can allow you to change the length of your mortgage, which can impact your monthly payments and total interest costs, and we can help with the math so you can achieve your financial goals.
- Prepayment penalties: We’ll review your current mortgage to see if any prepayment penalties would impact the cost of refinancing.
- Credit score: If you now have a higher credit score now than you did when you originally got the loan, you may qualify for a different, more standard product that would come with more favourable terms.
Refinancing your mortgage can help you save money, reduce monthly payments, and help you achieve your financial goals. That said, it’s important to consider the costs and savings before deciding on how to go about it. We have to acknowledge that consolidating debt and spreading it out over a long period creates interest. If you’re in this situation, you have to decide what’s least favourable for you, high interest or high payment.
Contact the Kyle Miller Mortgage Agent team today! We’ll carefully evaluate the costs and benefits of refinancing your mortgage and shop around to find the best deal for your situation.
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